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Where the action is: price deregulation spawns a spot market for gas

By / December 3, 1984



Just about every commodity has one. Now natural gas does, too. It's a spot market - the place where huge volumes of demand-sensitive goods are sold for cash and delivered quickly. This is where the action is, whether it's soybeans or oil, because this is where general price trends are set.

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The idea of a spot market has never fitted the gas industry. First, gas producers have spent most of their lives under price regulation, and gas is only slowly coming out from under the controls. Second, it's not so easy to deliver gas, anywhere at all, very fast. Pipelines can't pick up stakes and rebuild themselves by the front door of a new buyer.

That's why the US Natural Gas Clearinghouse in Houston, America's first centralized spot market for this industry, is not like other commodity trading centers. Frank Setian, who helped start the clearinghouse in July, likens it more to ''placing a private investment in the securities industry than placing an order on the New York Stock Exchange.'' Their quickest deal has been to arrange delivery of gas to a buyer within a week.

Six major pipeline companies are members of the clearinghouse - an important point, since delivery from a gas producer to a utility or industrial buyer sometimes requires routing through more than one company's pipeline network. The clearinghouse is moving about 240 million cubic feet of gas a day, a small beginning but one with potential in a market moving closer to deregulation.

A spot market of sorts has been in use already as individual utilities shop on their own for cheap gas. Consolidated Edison, which serves metropolitan New York, can use either gas or oil to fuel its power generation. Joseph Hydok, a Con Ed vice-president, says the company's purchasing department has stepped up its spot market deals in the last year, passing savings on to gas and electric customers. In most cases, Mr. Hydok says, Con Ed can do better shopping on its own. But he sees a use in the clearinghouse. ''I think it can be very helpful (for users) who don't have much buying power on their own or the staff to search the field for supplies.'' And this, in fact, is the market Mr. Setian is hoping for.